Open sourcing your startup – a good idea?

Novell VP Miguel de Icaza recently stated that “making a successful open source business has been incredibly difficult” and “If your livelihood depends on the product that you’re selling, until you can figure how you’re going to make money on that thing, I say, keep it proprietary.” Now, while these statements may sound as though open source is a terrible business model, let’s look a bit closer before we decide.

To be fair, creating a successful business in any market, using any strategy is incredibly difficult – look at the scores of companies in the deadpools around the world. Great ideas and even great products do not always translate into great businesses. It is well known that striking it out on your own can be very risky and will often end in failure. But I am not trying to persuade you not to start your own company, and I’m certainly not telling you not to investigate open source as a business model. However, I am saying that the decision to use open source as part of your strategy should not be taken lightly. Like any important business choice it must be backed with careful investigation and market research. When looking at open source you need to consider the community surrounding the niche you will be releasing code into or borrowing code from. Will there be enough activity there to actually gain any benefit, or will you and your employees be doing all of the contributing?

You will also need to decide how you can extract value from the open source community. This is often the most difficult part. Speaking on the support model – in which an organization releases an open source product and then charges for commercial support de Icaza stated that “You need to take those steps carefully in my opinion. And support, by the way, is a horrible business.” Depending on the industry and on your reputation in that industry, support can be very lucrative or it can be a disaster. For startups, support may be a hard sell, especially if your customers can already get the product for free.

Perhaps a safer way to open source your product is remember how you are different. Open source everything that is common to your market, everything your competitors can do and everything in your product that is a commodity because none of that is important anyways. Now you can leverage some of the benefits of open source such as the many eyes phenomenon which helps you to create quality software (check out Raymond’s the Cathedral and the Bazaar if you haven’t already). More importantly, you have retained all of your competitive advantage by keeping your differentiating features proprietary. Now you can boast that you are contributing to the open source community and you can still beat your competitor’s offering because you have given nothing away that they don’t already have.

Sure creating an open source business is hard. You need great people, great ideas and at least one great product. The question is though, is it any harder, any more risky than starting a proprietary business?

Get some more of de Icaza’s quotes at the 2009 Microsoft PDC here.